How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask Lane Your Own Question

Lane
Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3712
Experience:  Providing Financial & Tax advice since 1986
Type Your Tax Question Here...
Lane is online now
A new question is answered every 9 seconds

I have piece of land an acre that is graded that I was going

Resolved Question:

I have piece of land an acre that is graded that I was going to put a house on it. I originally was going to build a spec home. But I didn't. The land is in CA. I thought of turning it into a residential home. One of the other options was to try to do a 1031 exchange with a property in Texas that has a home plus 11 acres that are agriculture exempt. Now could I do an exchange with that even if I live in property? Also, since there alot of deductions or credits for this land such as attorney fees, paid another person an amount to buy him out, grading, engineering, plans, etc., can I take part of that money and do the rest 1031 exchange?? Not sure how that works. Thank you
Submitted: 10 months ago.
Category: Tax
Expert:  Lane replied 10 months ago.

Customer:

Hi,

Customer:

One of the first things about 1031 exchanges s that it's intended for investment properties,

Customer:

Also, one of the other "biggies" is that it needs to be like- kind property ... As a matter of fact the name for this (which is under section 1031 of the IRC) is "Like-Kind Exchanges"

Customer:

So rental property for rental property is fine

Customer:

Grocery store for grocery store is fine, etc.

Customer:

Here's how the IRS puts it:

Customer:

The exchange can include like-kind property exclusively or it can include like-kind property along with cash, liabilities and property that are not like-kind. If you receive cash, relief from debt, or property that is not like-kind, however, you may trigger some taxable gain in the year of the exchange. There can be both deferred and recognized gain in the same transaction when a taxpayer exchanges for like-kind property of lesser value.

Customer:

Hi there

Customer:

I thought I saw you come into the chat, but while I'm waiting, Ill go ahead and try to address the rest of your question

Customer :

ok

Customer :

I also have a home equity loan that I used to fund some expenses and original interest loan for the property

Customer:

What happens when you do a 1031 exchange (especially a clean, easy one where your "buying up "... buying a more expensive property) is you are deferring the capital gains ... the basis for the first property essentially follows you into the next property

Customer :

I was going to build after a year but didn't.

Customer:

I think you're fine here, as long as it's investment proptery

Customer:

But yes if you contribute you are just adding to the basis, so that when you finally sell there won't be so much gain

Customer :

But it would probably be part investment 11 acres and the other portion of it is a home on .5 acres (that possibly we would live in). But the land we may raise cows or alpacas.

Customer :

Does it matter if we live in it or do we have to rent it out

Customer:

That gets iffy then ... the whole idea is that BOTH properties are used exactly the same ... AND ... both have to be either , in the words of IRS, "Business or investment Properties"

Customer:

Residence will not work

Customer :

oh ok

Customer:

Also here's one of the best, XXXXX XXXXX I've seen on how it works: http://www.expert1031.com/1031facts/articles/crej051706.html

Customer:

This is from the page I linked for you (from IRS):


Who qualifies for the Section 1031 exchange?


Owners of investment and business property may qualify for a Section 1031 deferral. Individuals, C corporations, S corporations, partnerships (general or limited), limited liability companies, trusts and any other taxpaying entity may set up an exchange of business or investment properties for business or investment properties under Section 1031.

Customer:

I think your idea works, generally, if you separate out the residence portion as a different lot, and buy that in a separate transaction

Customer :

Ohh

Customer :

Also, maybe if I rent it out, right?

Customer:

sure, not it's a rental

Customer :

huh

Customer:

You would be claiming that the initial was investment property also

Customer:

sorry, typo, sure THAT'S a rental

Customer :

ohh well its not its graded land wo a house yet

Customer :

so that would not work, uggg

Customer :

ok

Customer:

so sorry .. its gotta be like-kind

Customer :

so basically it would have to be land for land

Customer:

that definitely works

Customer:

as long as , at the time, its both "investment property"

Customer :

so would anything else work

Customer :

ohh

Customer:

Again, you just have to satisfy the criteria that it's a LIKE-KIND exchange ... I just had a grocery store owner do it for a larger store... saved her a huge amount of capital gains taxes (rather than selling at a large gains)

Customer :

so if i sell this land and I put it into this specific property then I would immediately have to pay capital gains minus my deductions right?

Customer:

all it really does is defer your gain on sale of the original property ... if you end up gong int a larger property them SOMEDAY, unless you do it again you'll have a REALLY large gains

Customer:

If just just sell witht doing the exchange, yes

Customer :

oh ok....

Customer :

what is the rate of tax for capital gain or does that depend on total income for that year, or do you pay title when you close

Customer:

If you get what's called a qualified intermediary, so that you don't take constructive receipt of the money and follow all of the 1031 exchange rules ... there'll be NO capital gains ... NOW ... the "dream" is that you keep doing it until you leave it to an heir and they get the step up in basis when you die and NObdy pays the gain :)

Customer :

ohh

Customer:

The cap gain is figured on shcedule D of your 1040 for the tax year of the sale

Customer :

ohhh ...interesting

Customer:

  • Individuals making in the $36,250 to $400,000 range will see their capital gains continue to be taxed at a 15% tax rate. Meanwhile, earners in the lowest two income tax brackets will pay 0% on investment income.

  • There will also be an additional 3.8% investment income tax applied to singles earning over $200k and couples earning over $250k. The purpose of this new tax is to help fund Medicare.

Customer :

uggg... that would be 18.8% for us

Customer:

Yep, that's why the 1031 exchange can be so attractive

Customer :

wowee....ok that is very informative....i guess i should find out what i should really be doing if i sell land but I dont want to buy other land

Customer :

uggg

Customer:

Definitely step 1

Customer:

By the way, here's an excellent site for diggin into the particulars of 1031 exchanges

Customer :

ok thank you i guess you have answered everything

Customer:

You very welcome ... remember, that it just has to be investment or business property (real-estate is real-estate, for example, and a business piece of equipment can be used in an exchange with a truck used for business as well ... it's that residence piece you mentioned that's the rub

Customer:

And again, here's the IRS guidance on it: http://www.irs.gov/uac/Like-Kind-Exchanges-Under-IRC-Code-Section-1031

Customer:

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better … That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Customer :

ohh....but again if I rent it out which may be unlikely that is business

Customer:

that's right

Customer :

but i would do it if i had to

Customer :

ok thanks

Customer :

you were great

Customer:

Better said, it's investment property

Customer:

thank you so much!

Lane, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 3712
Experience: Providing Financial & Tax advice since 1986
Lane and 4 other Tax Specialists are ready to help you
Expert:  Lane replied 10 months ago.


Thanks Marta,


If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,
Lane
Customer: replied 10 months ago.

"For Lane Only"


 


I forgot to confirm this:


 


If I chose to purchase the unlike property, the amount of capital gains would be based on the sale price minus my expenses incurred on the land while it was investment property or would they be based solely on the sale price of land>

Expert:  Lane replied 10 months ago.



Thanks for asking for me...

The capital gain is always charged at the time of sale (what you choose to do with those sales proceeds is really an unrelated issue)

The gain is charged on NET sales price (you can deduct sales commission and other selling costs from the sales price) ... MINUS ... your basis in the property (which would be your original purchase price PLUS any improvements to the property)

The only time that sale gets related to some future purchase is when you want to do the 1031 exchange and swap the properties to defer the gain.

Make sense?

JustAnswer in the News:

 
 
 
Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.
 
 
 

What Customers are Saying:

 
 
 
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
< Last | Next >
  • I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response... T.G.W Matteson, IL
  • I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight. Bonnie Chesnee, SC
  • Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation. John Minneapolis, MN
  • Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with. Orville Hesperia, California
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C. Freshfield, Liverpool, UK
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex Los Angeles, CA
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP Hesperia, CA
 
 
 

Meet The Experts:

 
 
 
  • Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
< Last | Next >
  • http://ww2.justanswer.com/uploads/KU/KUMI95/2013-9-30_195031_kumar.64x64.jpg Wallstreet Esq.'s Avatar

    Wallstreet Esq.

    Tax Attorney

    Satisfied Customers:

    570
    10 years experience
  • http://ww2.justanswer.com/uploads/CU/Cuttinggirl/2011-10-29_03719_wcrop2.64x64.jpg Wendy Reed's Avatar

    Wendy Reed

    Enrolled Agent

    Satisfied Customers:

    3052
    15+ years tax preparation and tax advice.
  • http://ww2.justanswer.com/uploads/CATax/2009-08-04_204548_Mark.jpg Mark D's Avatar

    Mark D

    Enrolled Agent

    Satisfied Customers:

    985
    MBA, EA, Specializing in Business and Individual Tax Returns and Issues
  • http://ww2.justanswer.com/uploads/IN/insearchoftheanswer/2013-8-16_0233_attorney.64x64.jpg Richard's Avatar

    Richard

    Tax Attorney

    Satisfied Customers:

    3229
    29 years of experience as a tax, real estate, and business attorney.
  • http://ww2.justanswer.com/uploads/MY/MyVirtualCPA/2012-7-5_44024_cookmegan1.64x64.jpg Megan C's Avatar

    Megan C

    Certified Public Accountant (CPA)

    Satisfied Customers:

    6121
    Licensed CPA, CFE, CMA who teaches accounting courses at Master's Level
  • http://ww2.justanswer.com/uploads/JG/jgordosea/2012-6-7_43138_GordosVeritas.64x64.jpg jgordosea's Avatar

    jgordosea

    Enrolled Agent

    Satisfied Customers:

    2783
    I've prepared all types of taxes since 1987.
  • http://ww2.justanswer.com/uploads/OZ/ozaukeecpa/2012-6-7_193219_Picture1croppedandshrunk.64x64.jpg MequonCPA's Avatar

    MequonCPA

    Certified Public Accountant (CPA)

    Satisfied Customers:

    2231
    CPA, Over 30 yrs experience w/individuals and small businesses. Masters in Tax.